Question

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,509 per unit and then sells them to retail customers for an average price of $2,200 each. The company’s selling and administrative costs for a typical month are presented below:

Costs	Cost Formula
Selling:
Advertising	$	962 per month
Sales salaries and commissions	$	4,801 per month, plus 3% of sales
Delivery of pianos to customers	$	60 per piano sold
Utilities	$	642 per month
Depreciation of sales facilities	$	4,995 per month
Administrative:
Executive salaries	$	13,420 per month
Insurance	$	707 per month
Clerical	$	2,487 per month, plus $38 per piano sold
Depreciation of office equipment	$	936 per month

During August, Marwick’s Pianos, Inc., sold and delivered 61 pianos.

Required:

1. Prepare a traditional format income statement for August.
2. Prepare a contribution format income statement for August. Show costs and revenues on both a total and a per unit basis down through contribution margin.

Answer 1

Assumption :

1) Depreciation on sales facilities is wholly incurred for selling overheads in traditional income statement.

2) Sales salaries and commission is of partially variable cost and fixed cost. So, it sales salaries is treated as fixed cost and sales commission is treated as variable cost.

3) clerical coat is of partially variable cost and fixed cost. So, it is also treated same as sales salaries and commission.